Reversal of fortune for emerging market ETFs as investors rush in

NEW YORK May 21 (Reuters) - U.S. investors who fled
emerging market equities at the beginning of the year are coming
back with a vengeance.

So far in the second quarter, they have poured $5.3 billion
into related exchange-traded funds, citing growth prospects and
attractive valuations for a group they had been selling broadly
since September. That is more than double the total net
investments in emerging market equity ETFs for all of 2014,
according to FactSet data.

In the first quarter, investors pulled $1 billion out of the
group.

As U.S. stocks hit new highs, shares of companies in
emerging markets look cheaper than U.S. stocks, said Heidi
Richardson, BlackRock's global investment strategist.

"Valuations are looking much more attractive," Richardson
said, noting the discount on price-to-earnings for emerging
markets relative to the U.S. and developed markets.

The SPDR S&P 500 ETF, for example, has a current
price-to-earnings ratio of 20.28, while the Vanguard FTSE
Emerging Markets ETF and iShares Emerging Markets ETF
have price-to-earnings ratios of 13.02 and 13.05,
respectively.

Emerging market equity ETFs on average have returned 11.4
percent to investors so far this year, after losing 1.3 percent
in 2014, according to FactSet data.

Emerging markets had fallen out of favor heading into 2015,
as investors acted on concerns that the whole group could be
hurt by a strengthening dollar, falling commodity prices and
expected Federal Reserve interest rate hikes. Countries such as
Brazil and Turkey, which have a big portion of their debt
denominated in dollars, are hurt as a stronger dollar makes it
more expensive to repay their debt.
Continuación...